Israel halts funds to Palestinian Authority

Israel froze contacts with what it called the "terrorist" Palestinian Authority yesterday, and put a block on the transfer of funds, the day after the swearing in of a Hamas-dominated parliament.

"Israel views the rise of Hamas as a dangerous milestone that turns the Palestinian Authority into a terrorist authority," said the acting prime minister, Ehud Olmert. "Israel will not hold contacts with the administration in which Hamas plays any part - small, large or permanent."

The cabinet decided to halt the transfer of funds, mostly about $50m (£29m) a month in tax and customs receipts, to the PA and to appeal to foreign governments to do the same until Hamas renounces violence and recognises Israel's right to exist.

The US secretary of state, Condoleezza Rice, begins a tour of the Middle East today during which she is expected to press Arab governments not to finance Hamas. Washington has also demanded that the PA repay $50m in aid that could fall under Hamas control.

But the Israeli cabinet stopped short of approving more drastic measures recommended by the military, including barring the entry of workers and goods from the Palestinian territories.

Hamas yesterday named Ismail Haniyeh, one of its leaders in the Gaza strip, to be the next Palestinian prime minister. Mr Haniyeh said yesterday that in talks to form the new government "everything will be on the table", including demands by President Mahmoud Abbas for Hamas to abide by agreements with Israel.

At the swearing in of the new parliament on Saturday, in which Hamas holds 74 of the 132 seats, Mr Abbas warned Israel against using the Hamas victory as an excuse to continue its strategy to unilaterally impose borders and annex territory.

"[The election] should not be used to justify further aggression against our people, or as a pretext for blackmailing it. The Palestinian people should not be punished for its democratic choice that was expressed through the ballot box," he said.

Palestinian analysts said the threat to cut ties with the PA is a largely meaningless sanction as the Israeli prime minister, Ariel Sharon, who is still in a coma, and Mr Olmert consistently refused to negotiate on the grounds that there is "no partner for peace".

But the cut in funds to the cash-strapped PA could be destabilising, particularly if it is unable to pay its 130,000 workers. The US and Israel say they will ensure that humanitarian aid continues to the Palestinian people without it falling under Hamas control.

Hamas is casting around for alternative sources of funding. The head of its political wing, Khaled Mashaal, is expected in Tehran today to meet President Mahmoud Ahmadinejad, a move that will further infuriate Israel.

Mr Abbas told parliament he requires Hamas to respect the Oslo accords with Israel that recognise the Jewish state. "From the hour the accords were endorsed, they became a political reality to which we remain committed," he said.

"We, as presidency and government, will continue our commitment to the negotiation process as the sole political, pragmatic, and strategic choice through which we reap the fruit of our struggle and sacrifices over the long decades."

But Mr Abbas accused Israel of undermining the peace process. "Ariel Sharon... declared an open battle against the Palestinian people, and proceeded to systematically destroy the PA's institutions and frameworks," he said.

"During this period, the racist separation wall was built and settlement construction in the West Bank was doubled. Sharon introduced an iron fist policy against the Palestinian people."

Mr Abbas called on the "civilised world" to force Israel back to negotiations.

"Anybody who thinks that these kinds of policies would force our people to hoist the white flag and to give up is mistaken."

Who is Haniyeh?

Ismail Haniyeh, 43, is regarded as a political pragmatist who will not push for confrontation with Israel but still endorses Hamas's right to armed resistance against occupation. He was born in the Shati refugee camp in Gaza and educated at the Islamic university where he gained a degree in Arabic literature. Haniyeh was expelled to Lebanon by Israel in 1992. He returned to Gaza city a year later and was appointed dean of the Islamic University. In 1998, he became head of the office of Hamas's spiritual leader, Sheikh Ahmed Yassin. Haniyeh rose to prominence after Yassin's assassination by Israel in 2004. He was top of Hamas's election list and has good relations with Palestinian factions.